- The Bank of Japan is under heavy pressure while defending the yield policy
- The BoJ’s surrender could lift the yen, hurting global bonds
- More profits to come, many central bank speakers
SYDNEY (Reuters) – Asian stocks rose on Monday as investors waited anxiously to see if the Bank of Japan (BOJ) would defend its ultra-high stimulus policy at a pivotal meeting this week, while US markets were on holiday. for weak circulation.
There have been rumors that the Bank of Japan may hold an emergency meeting on Monday as it struggles to defend the new yield ceiling in the face of aggressive selling. Read more
This was the markets in an anxious mood, the Japanese Nikkei index (.N225) It fell 1.0% to a two-week low.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) It was still up 0.5%, with hopes that China would reopen quickly giving it a 4.2% gain last week. Excellent China Index (.CSI300) It was also up 0.6%.
EUROSTOXX 50 futures rose 0.6%, while FTSE futures rose 0.1%. S&P 500 and Nasdaq futures were flat, after last week’s rebound on Wall Street.
Earnings season heats up this week with Goldman Sachs, Morgan Stanley and the first big tech name, Netflix, among those reports.
World leaders, policymakers and CEOs will attend the World Economic Forum in Davos, and there is a group of central bankers speaking, including at least nine members of the US Federal Reserve.
The Bank of Japan’s two-day official meeting ends on Wednesday and speculation is rife that it will make changes to its Yield Curve Control (YCC) policy given the market pushed 10-year yields above their new 0.5% cap. Read more
The Bank of Japan bought nearly 5 trillion yen ($39.12 billion) of bonds on Friday in the largest daily operation ever, however, yields still ended the session higher at 0.51%.
Early Monday, the bank offered to buy another 1.3 trillion yen of Japanese government bonds, but the yield remained at 0.51%.
“There is still some possibility that market pressure will force the Bank of Japan to further adjust or exit the YCC,” JPMorgan analysts said in a note. We cannot ignore this possibility, but at this stage we do not consider it a major scenario.”
They added that “although domestic demand has begun to recover and inflation continues to rise, the economy is not warming up to the point where a sharp rise in interest rates and the potential risk of a significant yen appreciation can be tolerated.” “Thus, we believe that the economic environment is not very supportive of successive political changes.”
Yen not installed
The Bank of Japan’s Uber-easy policy acted as a kind of anchor for yields globally, while the yen fell. If this policy is abandoned, this will put upward pressure on yields across developed markets and will most likely see the yen strengthen.
The dollar has already reached its lowest since May at 127.67 yen, after losing 3.2% last week, and is threatening to break key support around 126.37.
The euro also lost 1.5% against the yen last week, but was supported by gains from broad-based dollar weakness, which saw it stand at $1.0826 on Monday, off a nine-month high.
All this saw the US Dollar Index drop to its lowest level since June at 101.98.
The dollar was undercut by lower US bond yields as market bets could be that the Fed will be less aggressive in raising interest rates given that inflation has clearly turned the corner.
Futures now point to almost no chance that the Fed will raise interest rates by half a point in February, with a quarter-point move seen as a 94% probability.
The 10-year Treasury yield fell 3.51%, after falling 6 basis points last week, near its December low and a key chart target of 3.402%.
The easing of global supply bottlenecks in recent months has been a shock to inflation, which increases the chance of a soft landing for the US economy, said Alan Ruskin, global head of G10 foreign exchange strategy at Deutsche Securities.
“A lower inflation rate itself encourages a soft landing through real wage gains, by allowing the Federal Reserve to stall more easily and by encouraging a better-behaved bond market, with favorable spillovers for financial conditions,” Ruskin said.
“A soft landing also reduces tail risk from rising US interest rates, and this lowering of the risk premium helps global risk appetite,” Ruskin added.
Gold benefited from the decline in returns and the dollar, as it jumped 2.9 percent last week to its highest level since April, and it was last traded at $1,920 an ounce.
Oil prices also rose last week on hopes that China’s rapid reopening will boost demand. Data on commuting, traffic and transport trips in China showed a sharp recovery in traffic ahead of the Lunar New Year holiday next week.
Chinese data on economic growth, retail sales and industrial production due this week is sure to be bleak, but markets are likely to push through to a quick recovery now that coronavirus restrictions have been lifted.
Prices fell slightly on Monday, with Brent crude down 31 cents to $84.97 a barrel, while US crude fell 27 cents to $79.59.
($1 = 127.8000 yen)
Reporting from Wayne Cole. Edited by Shri Navaratnam
Our standards: Thomson Reuters Trust Principles.